Chevron to sell Hess Midstream stake in cost-cutting deal

Chevron Corporation (NYSE: CVX) has reached an agreement to sell its stake in Hess Midstream LP (NYSE: HESM) along with its DJ Basin crude oil midstream assets. In exchange, Chevron will receive $200 million in cash and restructured long-term midstream contracts from Hess Midstream. The revised contracts are expected to cut Chevron's unit midstream costs in the Bakken region by roughly 50%. Additionally, Chevron will transfer its general partner position in Hess Midstream as part of the transaction.

The deal is projected to remove approximately $3.7 billion of Hess Midstream's debt from Chevron's balance sheet. The company anticipates that the transaction will boost its return on capital employed by 0.5% on an absolute basis. However, Chevron expects to record a one-time after-tax loss of $3 billion to $4 billion at closing, which it attributes to the inability to recognize future Bakken midstream cost savings as an asset. This loss is expected to be treated as a special item.

Andy Walz, Chevron's President of Downstream, Midstream and Chemicals, commented on the transaction, stating that it resets the commercial framework between Chevron's upstream and midstream assets in the Bakken and DJ Basins. He added that the deal lowers Chevron's Bakken cost structure while positioning Hess Midstream to advance as an independent company.

The transaction has received approval from the Conflicts Committee of the Board of Directors of the general partner of Hess Midstream, which consists entirely of independent directors. The deal is subject to customary closing conditions and regulatory approvals, with an expected closure by the end of 2026. BofA Securities and Latham & Watkins LLP are serving as financial and legal advisors to Chevron, respectively, while Evercore and Gibson, Dunn & Crutcher LLP are advising the Conflicts Committee.